Germany Full Rating Report Ratings Foreign Currency Long-Term IDR Short-Term IDR Viability Rating BBB+ F2 bbb+ Support Rating 5 Support Rating Floor NF Sovereign Risk Foreign-Currency Long-Term IDR Local-Currency Long-Term Rating Outlooks AAA AAA Foreign-Currency Long-Term Rating Stable Sovereign Foreign-Currency Long- Stable Term IDR Sovereign Local-Currency Long- Stable Term IDR Financial Data 30 Jun 16 31 Dec 15 Total assets (USbn) 591 580 Total assets (EURbn) 533 533 Total equity (EURbn) 30 30 Operating profit (EURm) 472 1,907 Net interest margin (%) 1.1 1.1 Cost/income ratio (%) 82.9 74.0 Operating RoRWA a (%) 0.5 1.0 NPL ratio (%) 3.1 3.4 Fitch Core Capital ratio (%) 12.5 12.9 CET1 ratio (fully loaded (%)) 11.5 12.0 a RWA = Risk Weighted Assets Related Research Fitch Upgrades Commerzbank to 'BBB+'; Outlook Stable (March 2016) - Ratings Navigator (April 2016) Germany - September 2016 Global Economic Outlook Forecast () Poland - September 2016 Global Economic Outlook Forecast () Analysts Roger Schneider +49 69 768 076 242 roger.schneider@fitchratings.com Lola Yusupova +49 69 768 076 114 lola.yusupova@fitchratings.com Key Rating Drivers VR Drives IDR: s (CBK) Issuer Default Ratings (IDRs) are driven by its standalone credit quality as expressed by its Viability Rating (VR). The ratings reflect the bank s moderate profitability, improved asset quality, sound progress in de-risking and reduction of non-core assets, adequate capitalisation as well as stable funding and liquidity. Profitability Under Pressure: CBK s results weakened in 1H16 after improving in 2015, driven primarily by a modest performance of the Mittelstandsbank and Corporates & Markets units. Low interest rates, competition, challenging market conditions and subdued client activity have hampered revenue generation. Losses attributable to legacy assets have declined in recent years but will remain a drag on performance. CBK expects the legacy assets to generate a cumulative operating loss of up to EUR1.1bn in 2017-2020. New Strategy Bears Execution Risks: CBK presented a new strategy at end-3q16 that focused on cost-cutting, digitalisation and streamlining the bank s business model. The strategy also sets ambitious growth targets for business with private customers and small business clients. We believe that the announced measures address the bank s challenges, although execution risk is high. Negotiations on staff layoffs can be lengthy and costly. Restructuring costs and goodwill impairments will burden results until 2018. Good De-risking Progress: CBK has reduced its exposure to commercial real estate (CRE) and ship finance (SF), which in the past represented a large proportion of non-performing loans (NPLs). The reduction was achieved through sales and repayments. Asset quality in CBK s core segments has remained sound and stable, supported by a benign business environment. The bank s overall NPL indicators improved and are close to the domestic industry average. Sound Domestic Franchise: CBK is Germany s second-largest bank. It services about 12 million domestic retail clients and is one of the leading lenders to Germany s SMEs and large corporates. The bank maintains a fairly strong Polish franchise through its subsidiary, mbank. Adequate Capitalisation Despite Recent Decline: CBK s fully loaded common equity Tier 1 (CET1) ratio rose to 12% at end-2015 from 9.3% at end-2014, driven by a capital increase and RWA reductions. The ratio fell to 11.5% at end-1h16, mainly due to higher RWAs for market and operational risks and charges, resulting from re-assessed pension liabilities and revaluation and currency translation reserves. As a result, CBK s CET1 fell below its combined capital requirement, including its 10.25% SREP-ratio for 2016 and a fully applied D-SIB buffer of 1.5%. Downside Risks Remain: CBK s riskier exposures are still material despite the reduction and will require further impairments due to a weak performance of the shipping industry. CBK maintains a large exposure to the public sector, which includes long-dated Italian and Spanish sovereign bonds. This exposure makes the bank potentially vulnerable to adverse changes in the eurozone periphery s debt-servicing capacity, market risks or modifications of the regulatory treatment of sovereign debt. Rating Sensitivities Limited Upside Potential: We view upside potential to CBK s ratings as limited as they are constrained by its moderate earnings capacity in a competitive domestic market and in a lowinterest-rate environment. An upgrade would require a significant improvement in profitability and capitalisation while maintaining sound asset quality in the core portfolio through the cycle. www.fitchratings.com 25
Germany and Poland core regional markets Resilient, diversified and open German economy with a competitive manufacturing sector and solid domestic property market Strong macro performance in Poland with a robust GDP growth and falling unemployment Real GDP Growth Historical data and forecast 2016-2018 Germany Poland United States (%) 4 3 2 1 0 11-15 av. 2015 2016 2017 2018 Source: Fitch Operating Environment Benign Macroeconomic Environment CBK s core regions of operations are Germany (AAA/Stable) and Poland (A-/Stable). The operating environment in Germany remains benign. The sound quality of domestic lending is supported by unemployment rates that are at a post-reunification low, still healthy property markets and low corporate insolvencies. Fitch Ratings expects sound domestic fundamentals to continue to support growth, while global uncertainties remain a key risk for the highly open German economy. Fitch forecasts GDP growth in Germany at 1.7% in 2016 and 1.4% in 2017 and 2018. Residential mortgage lending has been an important area of new business generation for CBK and many German peers. Despite material price increase in some large urban centres, Fitch expects the affordability and the overall residential mortgages performance to remain robust, supported by rising disposable income, and low unemployment and interest rates. However, subdued global growth may have an adverse impact on the export-oriented German SME sector. The moderate weakening in the latest indicators for the corporate sector s confidence highlights the German economy s exposure to the uncertain external outlook. An additional source of risk are the consequences of the Brexit vote, which cannot be fully assessed at this stage but are likely to weigh on the EU economies, mainly due to lower exports to the UK. Competitive Pressure German banks performance benefits from the benign domestic economic environment but is challenged by margin compression from strong competition and low interest rates. This limits banks internal capital generation and weakens investor confidence in the sector s earnings capacity, as in many European markets an average generated return on equity is well below the cost of capital. The sector s reliance on wholesale unsecured funding is moderate as deposits remain the main funding source. In early 2017, a new hierarchy of creditors for German banks in resolution comes into effect, including retroactive statutory subordination of senior unsecured bonds to deposits and structured liabilities. The new regime should mitigate the need to raise additional unsecured debt to fulfil Minimum Requirement for Own Funds and Eligible Liabilities (MREL) and Total Loss-Absorbing Capacity (TLAC), which the regulator has yet to set. This could raise the cost of banks senior unsecured funding, although there is little evidence of this so far. Macro Performance in Poland Supported by Strong Labour Market Fitch forecasts real GDP growth in Poland to slow to 3.0% in 2016 from 3.6% in 2015, mainly due to lower disbursement of EU funds and its impact on government investment. For 2017 and 2018, the agency expects growth to accelerate to 3.2% and 3.3%, respectively. Domestic demand will remain driven by private consumption, supported by a strong labour market (unemployment had fallen to 6.1% in July 2016 from above 10% in 2013), favourable financing conditions and increased government transfers to families. The main risk remains the external environment, especially in the wake of the UK s vote to leave the EU. Polish exports to the UK and the rest of the EU account for 6% and 75% of the total, respectively. Policy predictability in Poland has weakened since the October 2015 political transition. During its first months in power the government has implemented some unorthodox measures that could affect Poland s business climate. However, some legislative proposals and pre-election promises have been revisited. This includes the scheme to mandatory convert Swiss franc mortgage loans (equivalent to 7.5% of GDP) into local currency, which could have posed a risk to the financial sector s stability depending on the terms. Related Related Criteria Criteria Global Bank Rating Criteria (July 2016) In August 2016, the president s office released a new proposal how to address the Polish banking sector s foreign-currency mortgage loans. Mandatory conversion does not appear to be on the cards, at least in the short term. The cost of the new plan (estimated by the regulator 2
at about EUR2.2bn for the sector) would be far less than an outright conversion, which had been proposed in the initial scheme. However, the authorities remain keen to scale down the level of outstanding foreign-currency retail lending and could gradually introduce more punitive risk weights for these loans or introduce additional capital requirements to incentivise voluntary conversion. Company Profile Second-Largest Bank in Germany with an Adequate Franchise CBK is Germany s second-largest bank in terms of total assets and operates a diversified business model. As one of the leading retail banks in Germany, it services about 12 million domestic private clients and operates a country-wide network of about 1,000 branches. The bank has recently intensified its efforts to expand its Wealth Management business. CBK also maintains a strong regional franchise in the domestic SME sector, particularly in foreign trade finance and syndicated lending as well as high customer coverage in the large corporates segment. However, CBK s size, market penetration and pricing power remain relatively low for its size by international standards. This reflects the fragmented and competitive nature of the German banking market. Increasing market share remains one of the CBK s strategic objectives. Through its subsidiary mbank, CBK maintains a good franchise in Poland, the second core region of the CBK group. mbank is the fourth-largest Polish bank by total assets, servicing more than five million retail and about 20,000 corporate clients. Reorganisation of the Former NCA Segment Exposure at default (EaD) at YE15 Transfered to ACR Transfered to core segments (EURbn) EaD at 50 YE15 36 40 30 20 EaD at YE15 10 3 New strategy focuses on cost-cutting, digitalisation and streamlining the bank s business model Strategy addresses the bank s challenges, but the execution risks are high Mixed previous execution record: deleveraging in line with the schedule, profitability and efficiency targets not within reach EaD at 7 YE15 6 0 CRE Shipping Public funance, figures rounded 3 9 Non-Core Assets Reduced but Risks Remain In early 2016, CBK said it will dissolve its Non-Core-Assets (NCA) segment due to the progress it has made in winding down these legacy assets in line with its target for 2016. Since 2012, this segment included the bank s non-core and high-risk assets, primarily CRE, shipping and public finance. NCAs have been significant drag on CBK s results. However, negative segment contributions have gradually decreased as non-core portfolios have been wound down to about EUR63bn at end-2015 from about EUR160bn at mid-2012. About 70% of the residual NCA assets at end- 2015 were attributable to public finance and the rest to CRE and shipping. Following the decision to dissolve the NCAs, CBK transferred performing, stable and less complex sub-portfolios into the core bank segments (mostly Mittelstandsbank and Treasury) and grouped the remainder in a new Asset & Capital Recovery (ACR) unit. Despite the partial reintegration of these assets into the core segments, CBK does not intend to resume new business origination in ship finance and only selectively in CRE. CBK intends to reduce the segment RWA by about EUR9bn, or about 40%, until 2020. We understand from the management that it expects to be able to complete the run-down of the ship finance and CRE exposure allocated to the ACR segment by that time. Despite the significant de-risking progress this exposure amounted at 1H16 to still high EUR5.4bn. Management and Strategy Chief Executive Successor from Within CBK s Ranks CBK appointed a new chief executive in May 2016 after the bank s previous chief executive, who had led CBK for eight years, decided to leave the bank. The new chief executive had served as CBK s board member in charge of the Private Customers division for several years. In September 2016, the new chief executive presented a new strategy developed by the management bodies of the bank to address the profitability and efficiency issues. 3
Extensive Reorganisation with Considerable Execution Risks The new strategic plan presented at end-3q16 will result in an extensive reorganisation of the bank. The main strategic targets include a streamlining the bank s business model to reduce structural complexity and to concentrate on the bank s core activities (taking into account the future regulatory treatment of activities), a comprehensive digitalisation programme and a gross reduction of about 9,600 in staff numbers by 2020. The strategy also sets ambitious growth targets, including two million new retail clients in Germany by 2020 and an increase of the market share in the small business segment to 8% from 5%. However, the expected revenue increase is much more moderate. CBK has defined profitability targets for 2020, including a cost/income ratio below 66% and a net return on tangible equity of above 6%. We believe that the announced measures address the bank s challenges, but consider the execution risks high. Negotiations on job cuts can be lengthy and costly in Germany. Restructuring costs and goodwill impairments will burden the bank s results until 2018. The growth targets are ambitious and in the context of the strong domestic competition may require pricing concessions. Although the bank has a good record of implementing new IT projects, there are inherent uncertainties associated with cost planning in this area. These risks may narrow or delay the projected cost-optimisation effects. Headwinds from Regulatory and Interest-Rate Environment CBK s record of hitting its strategic targets has been mixed. The bank has achieved a notable progress in de-risking. CBK has also delivered on its leverage and capital ratio targets, even taking into account the CET1 decline at end-2q16. Certain growth and client acquisition targets have been met, with good improvements in the Private Customers segment. With respect to the profitability and efficiency targets, the bank s progress has been limited. Profitability targets set in 2012 are no longer considered feasible in the light of the interest-rate environment. The modest performance targets set in the new strategic business plan highlight the challenges faced by German banks. Intense competition combined with low interest rates and broadly sound asset quality may lead to softer underwriting standards. Major conduct and litigation case closed, further litigation charges possible but are not expected to be material Risk Appetite Underwriting Standards in Line with Industry Practice Fitch believes that CBK maintains adequate risk-management systems and that the bank s risk appetite in its domestic corporate and retail banking activities is broadly in line with the common industry practice. CBK has reported a material increase in new mortgage lending in recent years. Uncollateralised consumer finance lending has remained stable at a relatively low level. We believe that the bank s underwriting standards in retail lending are sound, which is evidenced by very strong asset quality in this portfolio. In corporate lending, CBK has also achieved volume growth while maintaining sound asset-quality ratios, supported by a benign domestic environment. Riskier asset-based lending has been systematically wound down for several years. Margin pressure in a benign environment with strong competition could result in a loosening of underwriting standards in the banking sector as a whole, but we do not expect CBK to increase its risk appetite materially. Major Conduct and Litigation Risks Addressed Similarly to its peers, CBK is exposed to conduct and litigation risks. Following a USD1.452m settlement in March 2015 with the US authorities regarding the breaches of US sanctions and money-laundering law, Fitch believes that CBK closed its major litigation and conduct related issues. In early 2016, the bank announced a EUR17m fine in connection with an accusation against CBK s Luxembourg subsidiary of facilitating tax evasion. While further litigation charges and penalties cannot be ruled, including those related to irregularities in transactions around the dividend record date, Fitch does not expect them to be material. 4
VaR (99%, 1d) (EURm, %) 1H16 YE15 YE14 Overall Book 145 118 98 - Thereof Trading 38 29 16 Book - O/w credit spreads 12 6 5 - O/w interest rates 6 4 3 - O/w equity 3 4 2 - O/w FX 16 14 5 - O/w commodities 1 1 1 Fitch stressed VaR for trading book (99%, 10d; X 5)/FCC (%) 2.4 1.8 1.1, Fitch Moderate Traded Market Risk Exposure The main drivers of market risk in CBK s trading book are credit spreads and exchange-rate fluctuation, followed by interest-rate and equity risks. The central indicator applied for the measurement and management of market risks is Value at Risk (VaR). The model output undergoes a daily back-testing, whereby negative outliers must be reported to the supervisory authorities. Although trading VaR considerably increased during 1H16, primarily driven by higher market volatility rather than changes in the positions held, the overall market risk exposure in CBK s trading book remains moderate, in our view. CBK intends to reduce its trading activities and product offering to concentrate on core client business, taking into consideration likely increases in regulatory capital requirements for certain trading businesses. Market risk in the banking book is primarily driven by spreads in the bank s public finance exposure consolidated in the ACR segment and by credit and interest-rate risks in the treasury portfolios. Credit spread sensitivities largely relate to securities classified as loans and receivables and thus not held at fair value, which means that changes in the market price have no immediate effect on the income statement or reported equity. Market risk in the banking book is implicitly captured in the VaR figure for the overall book. In addition, CBK simulates the impact of a hypothetical interest shock arising from +200/ 200bp parallel shifts in the yield curve on the economic value of banking book positions. An interest-rate shift of +200 basis points would lead to a potential loss of EUR1,828m, or about 7.4% of Fitch Core Capital (FCC), at end-1h16, which is roughly in line with peers (end-2015: EUR1,784m, about 7% of FCC). Market risk management is consolidated on the group level and broken down to individual segments and units. CBK applies a comprehensive system of limits for monitoring market risks, including limits for sensitivities, VaR, and economic capital requirements. CBK has established market risk policies and restrictive guidelines with regard to portfolio structures, products and maturities. Gradually improving NPL indicators driven by a wind-down of legacy assets and supportive macroeconomic environment Sound asset quality in the core segments Development of NPL- Indicators (EURm) 18,000 15,000 12,000 9,000 6,000 3,000 0 NPL - volume ACR (LHS) NPL - volume core (LHS) NPL - ratio (RHS) FYE13 FYE14 FYE15 1H16 (%) 8 6 4 2 0 Financial Profile Asset Quality Customer loans account for about 40% of CBK s total assets and are the main source of credit risk. Other earning assets include derivatives (about 16% of total assets, which is broadly in line with the large domestic peers), reverse repos as well as securities, which include mainly bonds. Gradually Improving Loan Quality Loan Quality (%) 1H16 FYE15 FYE14 FYE13 Impaired loans/gross loans 3.1 3.4 5.5 6.9 Growth of gross loans 1.6-3.8-3.6-11.2 Reserves for impaired loans/impaired loans 56.2 54.2 47.8 42.7 Impaired loans less reserves for impaired loans/fcc 11.5 12.7 27.8 40.2 Loan impairment charges/average gross loans 0.3 0.3 0.5 0.7, Fitch 5
Exposure at Default (EaD) by Segment at End-1H16 Default Volume by Segment at End-1H16 Central & eastern europe 17% Others & consolidationᵃ ACR 19% 4 % Central & eastern europe 6% Corporates & markets 13% a Mainly treasury liquidity portfolio Private customers 9% Corporates & markets 10% Downside risks in the ship finance portfolio Large public debt exposure, including long-dated Italian and Spanish sovereign bonds, vulnerable to the euro-periphery s deterioration and market risks ACR 28% Mittelstandsbank 34% Private customers 24% Mittelstandsbank 36% CBK s loan-quality indicators have improved materially over recent years, driven by a substantial reduction of non-performing, non-core assets. In the core bank, CBK has also reported lower default volumes, supported by benign domestic macroeconomic conditions. CBK s NPL ratio has improved to a level close to the industry average in Germany. Reserves coverage has increased, although further provisioning may be necessary to hold current reserves levels. This could materialise particularly if the valuation of ship collateral has to be adjusted downwards or further shipping loans become non-performing. Asset quality in the private customers segment is very strong with a gross NPL ratio below 1%. More than half of the exposure is to traditional owner-occupied residential mortgages, which we expect to continue to perform solidly. The volume of consumer and instalment loans has been stable on a relatively low level. The Mittelstandsbank segment comprises mid-size corporates, but also business with publicsector borrowers and banks not allocated to other segments. The segment reported relatively stable and sound gross NPL ratios of about 2% of the corporate clients exposure at default (EaD), which reflects a benign business environment in Germany and healthy corporate balance sheets. However, historically SME loans have shown higher NPL ratios than the large corporates and household segments. CBK is one of the most important domestic lenders to SMEs and is seeking further growth in this segment. While supported by a benign domestic economy, SMEs performance and CBK s credit risks in this segment may be vulnerable to a material economic downturn. Reduction in Non-Core Assets; Still Exposed to Downside Risks Despite a substantial reduction of the non-core legacy portfolios and related NPL volumes, the ACR segment still represents about 30% of total defaulted exposures and contributed over 40% of the loan-loss provisions in 1H16. Following the dissolution of the non-core assets segment in early 2016, about EUR3bn shipping loans at YE15 and about EUR7bn CRE loans were transferred to the core bank. Riskier and more complex assets have been included in the ACR segment. At end-1h16, the segment s performing EaD was still significant at EUR16bn and default volume at EUR1.8bn. ACR Structure Figures Rounded CRE Shipping Public finance ACR total EaD (EURbn) 2.8 5.4 9.1 17.3 Default volume (EURbn) 0.6 1.2 n.a. 1.8 NPL ratio (as % of EaD) 21 23 n.a. 11 Loan-loss provisions during 1H16 (FYE15) (EURm) -31 (FYE15: 36) 173 (FYE15: 325) 3 (FYE15: 0) 145 (FYE15: 361) Total loan-loss reserves at end-1h16 (EURm) 173 709 n.a. 886 NPL reserves coverage (%) 29 58 n.a. 48 Collateral value (EURm) 339 635-975 CRE exposure was reduced considerably further in 2015, particularly driven by the sale of two large German and European CRE portfolios. The residual risky and complex CRE loans, now reported within the ACR segment, have a manageable volume, in our view. Performance risks associated with these loans are mitigated by robust demand for comparatively high-yielding CRE assets. A large part of public finance exposure with sound credit risk and low volatility was transferred to the treasury segment. The exposure retained in the ACR segment contains mainly very long-dated receivables from local authorities and private finance initiatives in the UK and public debtors in the US. Shipping exposure has been materially reduced, but still constitutes a source of credit risks. The industry continues to suffer from structural overcapacity exacerbated by the subdued global trade dynamics and the economic slowdown in emerging markets, leading to declining 6
2017-2020ᵃ 1H16 FYE15 FYE14 FYE13 Banks and volatile freight rates. ACR-allocated shipping loans include about EUR2.5bn exposure related to container ships and bulkers, which Fitch believes are under the most pressure, while tankers and LNG ships perform stronger. We believe further impairments in these subportfolios are likely. Elevated risks of this asset class are also evidenced by the regulator s scrutiny. The coverage of CBK s shipping NPLs by reserves is above peers and together with the collateral mitigates remaining risks. However, our view is that collateral values are volatile and subject to potential downward adjustments due to low demand for ships or obsolescence. Tail Risk in Peripheral Country-Risk Exposure CBK maintains a relatively large exposure to partly long-dated Italian and Spanish sovereign bonds. This exposure is vulnerable to deterioration of the debt service capacity in the peripheral eurozone, market risks and potential modifications of the regulatory treatment of sovereign debt. At end-1h16, Italian sovereign exposure was reported at about EUR10.8bn and Spanish sovereign exposure was about EUR4.9bn. Low interest rates, challenging market conditions and subdued clients activity hamper revenue generation in the core business Declining, albeit still significant, negative result contributions from legacy assets, low risk costs in core segments and robust new mortgage lending support the results Regulatory costs limit the effect of efficiency measures Pre-Tax Loss of NCA, from 1Q16 ACR Segment (EURm) Four year 1,200 aggregate 1,000 800 600 400 200 0 a CBK estimate Operating Profit/RWA (%) 1.2 1.0 0.8 0.6 0.4 0.2 0.0 1H16ᵃ FYE15 FYE14 FYE13 CBK also maintains exposure to companies and financial institutions in Russia and China. It is subject to tight monitoring and active management due to the geopolitical developments in recent years, slowing growth rates and structural economic imbalances. CBK s Ukraine exposure remains immaterial and the exposure to Russia has been reduced substantially since the introduction of the sanctions. It was EUR3.5bn at end-1h16, which we believe is manageable. Exposure to China was reduced to EUR4.6bn at end-1h16. Earnings and Profitability Modest Profitability, Limited Upside Potential CBK s profitability remains modest. Low interest rates and regulation-related costs are putting pressure on the bank s results and this is exacerbated by fierce competition in the domestic banking sector. This pressure has been only partly counterbalanced by low loan impairment charges (LICs) in the core business and a gradually declining negative contribution from the bank s legacy assets. Weak profitability and the expected pressure from competition and low interest rates were the main factors that triggered the bank s strategic plan. Although the reorganisation addresses the bank s main challenges, we believe that profitability will not benefit until 2019. New Strategy Burdens CBK s Medium-Term Performance The bank expects to incur restructuring costs of about EUR1.1bn in 2017 and 2018 in connection with its strategic plan. The reorganisation will also result in a goodwill impairment of EUR700m in 3Q16, which combined with higher LICs on shipping and lower operating performance, will result in a net loss for that quarter. The bank expects a small net profit for FY16. We expect that during its reorganisation the bank s profitability will remain weak and volatile as one-off costs will affect results. The bank estimates that future savings from the restructuring and digitalisation, net of cost inflation, will be moderate at a total of about EUR0.6bn by 2020, when it also expects to realise some revenue increase. Profitability Ratios (%) 1H16 FYE15 FYE14 FYE13 Operating profit/rwas 0.5 1.0 0.3 0.4 Net interest income/average earning assets 1.1 1.1 1.0 1.1 Non-interest expense/gross revenues 82.9 74.0 79.5 73.9 Operating profit/average total assets 0.2 0.3 0.1 0.1 Net income/average equity 2.9 4.1 1.4 0.7, Fitch a Annualised 7
LIC Volume LIC core LIC non-core (EURm) 2,000 1,500 1,000 500 0 FYE13 FYE14 FYE15 1H16 Lower Losses from Legacy Assets and Low Risk Costs Support Profitability Pre-tax-losses from CBK s legacy assets have steadily decreased from about EUR4bn in 2011 to EUR417m end-2015. They are still material and the impairment charges on shipping loans will increase in 3Q16, but their gradual reduction has provided a noticeable relief for the bank s profitability. Between 2017 and 2020, CBK expects to generate a cumulative ACR segment loss of EUR1.1bn. We do not expect material further impairments on legacy assets beyond 2020, as we understand from management that the shipping and CRE exposure will be largely wound down by then. For the core operating segments Fitch believes that LICs have reached a cyclical low, which is unlikely to remain sustainable in the longer term, but in the short term a significant broad structural increase in LICs is unlikely given the benign operating environment. Core Segments with Mixed Profit Dynamics The main operating segments within the core bank have demonstrated mixed profitability. Profit contributions from the private customers segment has increased in recent years and been resilient, even adjusting for one-off gains. Results were supported by strong lending business, particularly in mortgages, which has largely offset declining spreads on customer deposit. However, margin pressure from low interest rates is high and we expect the erosion of net interest income to continue. This is because higher-yielding loans gradually mature and banks remain reluctant to charge retail customers for holding deposits. Fierce competition in new business results in tight margins. The performance of the Mittelstandsbank, which has been the largest profit contributor, has weakened. CBK s relatively large deposit base in combination with a negative ECB s deposit rate has led to margin compression, which was not compensated by lending growth due to subdued loan demand. CBK has introduced charges for deposits from institutional and corporate customers to mitigate margin pressure. Fee income has deteriorated, as a slowdown in global economic growth led to declining foreign trade and therefore trade finance volumes. Within the segment, domestic SMEs demonstrated a stable performance, whereas large corporates and financial institutions in the Mittelstandsbank segment contributed lower revenue in 1H16. Results of the Corporate & Markets segment have been volatile and were very weak in 1H16. This reflected low customer activity, unstable market conditions with falling equity and commodities prices, the potential impact of a slowdown in China and uncertainty over the monetary policy in the US. Among the most affected was the Equity Markets & Commodities division, where revenue fell by over 50% year on year in 1H16. Capitalisation and Leverage CET 1 and Leverage Ratio Fully loaded (%) 14 12 10 8 6 4 2 CET 1 Leverage ratio 0 FYE13 FYE14 FYE15 1H16 Capital Ratios (%) 1H16 FYE15 FYE14 FYE13 Fitch Core Capital/RWAs 12.5 12.9 10.3 11.6 Tangible common equity/tangible assets 4.7 4.9 4.0 4.1 CET1 ratio, fully loaded 11.5 12.0 9.3 9.0 Leverage ratio, fully loaded 4.4 4.5 3.4 - Adequate Capitalisation CBK s capital ratios have improved significantly since end-2014, supported by a capital increase in April 2015 and RWA reductions. However, CBK s CET1 ratio declined during 1H16 to 11.5% from 12%, driven by lower CET1 capital and higher non-credit-risk RWAs. Deductions from CET1 capital arose from higher pension liabilities as well as from lower revaluation and currency translation reserves. The RWA increase was primarily driven by higher charges for operating risks resulting from the inclusion of sector-wide litigation charges captured in external databases for operational risk events. RWAs related to operational risk amounted to 12% of the total at end-1h16. RWAs for market risk also increased, albeit by a lower amount, while creditrisk RWAs declined. 8
CBK s CET 1 ratio remains adequate, in our view. The bank has a comfortable buffer to its 2016 SREP requirement on a phase-in basis, but on a fully applied level, the bank s CET1 ratio at end-1h16 was below its implied 2019 SREP requirement of 11.75% including the buffer for domestic systemically important banks of 1.5%. We expect CBK to maintain a fully loaded CET1 ratio above the SREP requirements. The changes in the calculation of the capital requirements that have been announced by the ECB will result in a split of the Pillar 2 component into a requirement and guidance, which will add further clarity to the bank s endstate regulatory capital requirements. CBK s ability to boost capital by retaining earnings remains constrained in view of pressure on profitability at least until 2019, which means that the easiest way to improve capital ratios for the bank is a reduction in RWA. Reduction of Legacy Assets Will Provide Modest Capital Relief CBK s capitalisation will benefit from further RWA reduction in the ACR segment in the absence of large additional impairments. ACR represents about EUR23bn (-15% y-o-y) or almost 12% of the total RWA and utilises about 14% of employed CET1 capital. The RWA reduction of about EUR9bn by 2020 implies a net capital relief of about EUR300m. Latent Risks Remain In addition to downside risks related to bank s ability to wind down its legacy assets without denting earnings and capital, certain CBK s securities holdings may constitute a potential source of risk. CBK s holds a large securities portfolio, which is not reported at fair value, following its classification as loans and receivables in 2008 and 2009. The carrying amount of these securities at end-1h16 was about EUR3bn above their fair value. Should CBK be forced to dispose of these securities at market prices or switch to reporting at fair value it may face notable charges against its equity. However, this scenario is unlikely in Fitch s view. Balanced funding profile, supported by entrenched deposit franchise and moderate reliance on unsecured wholesale funding Loans/customer deposits likely to increase due to initiated charges on wholesale clients deposits Sound liquidity Funding and Liquidity Funding and Liquidity Ratios (%) 1H16 FYE15 FYE14 FYE13 Loans/customer deposits 87.8 83.4 94.3 98.9 Interbank assets/interbank liabilities 53.5 43.1 48.5 52.8 Customer deposits/total funding (excluding derivatives) 60.6 61.7 54.7 51.5 Balanced Funding Structure CBK's funding is sound and stable. The bank benefits from an entrenched franchise that allows stable access to a broad, diversified and granular deposit base. The proportion of customer deposits in its funding has increased over recent years and has resulted in a stronger loans/deposits ratio. However, CBK s large sight deposit surplus weighs on profitability in the current interest-rate environment. In 1Q16, CBK started to reduce excess deposits through the introduction of charges on current account balances of wholesale customers. We expect the bank to report higher loans/deposits ratios in the coming quarters as result. About half of CBK s capital market funding is in the form of covered bonds, which have proved to be stable and cheap source of funding even in times of stressed markets. CBK maintains a comfortable pool of eligible assets to maintain the level of covered bonds in the funding structure in the medium term. Under German legislation that implements the EU s Single Resolution Mechanism senior unsecured bondholders would be bailed in ahead of other senior unsecured creditors in resolution, which may lead to increased refinancing costs for German banks. We believe that the impact on CBK will be limited given its comparably moderate reliance on senior unsecured bonds and promissory notes funding. The bank plans to cover a significant proportion of MREL by own funds. 9
Sound Liquidity We consider CBK s liquidity to be sound. Based on the bank s internal liquidity model as at end-1h16 the bank had an available excess liquidity of about EUR55bn, including about EUR28bn held in a ring-fenced liquidity portfolio within the group treasury to cover unexpected liquidity outflows. The regulatory liquidity requirements are comfortably met. Support CBK s Support Rating and Support Rating Floor reflect our view that senior creditors can no longer rely on receiving full extraordinary support from the sovereign in the event that CBK becomes non-viable. 10
Income Statement 30 Jun 2016 31 Dec 2015 31 Dec 2014 31 Dec 2013 6 Months - Interim Year End Year End Year End EURm EURm EURm EURm Reviewed - Unqualified Audited - Unqualified Audited - Unqualified Audited - Unqualified 1. Interest Income on Loans 3,786 8,382 9,451 10,388 2. Other Interest Income 1,368 3,046 2,553 3,354 3. Dividend Income 35 188 210 129 4. Gross Interest and Dividend Income 5,189 11,616 12,214 13,871 5. Interest Expense on Customer Deposits n.a. n.a. n.a. n.a. 6. Other Interest Expense 2,509 5,837 6,857 7,710 7. Total Interest Expense 2,509 5,837 6,857 7,710 8. Net Interest Income 2,680 5,779 5,357 6,161 9. Net Gains (Losses) on Trading and Derivatives -135 538 725-55 10. Net Gains (Losses) on Other Securities 40-7 82 17 11. Net Gains (Losses) on Assets at FV through Income Statement 73-39 -129-27 12. Net Insurance Income n.a. 6 24 23 13. Net Fees and Commissions 1,602 3,424 3,260 3,206 14. Other Operating Income 79-23 -598-127 15. Total Non-Interest Operating Income 1,659 3,899 3,364 3,037 16. Personnel Expenses 1,818 4,053 3,984 4,009 17. Other Operating Expenses 1,777 3,104 2,945 2,788 18. Total Non-Interest Expenses 3,595 7,157 6,929 6,797 19. Equity-accounted Profit/ Loss - Operating 63 82 44 60 20. Pre-Impairment Operating Profit 807 2,603 1,836 2,461 21. Loan Impairment Charge 335 696 1,144 1,747 22. Securities and Other Credit Impairment Charges n.a. n.a. n.a. n.a. 23. Operating Profit 472 1,907 692 714 24. Equity-accounted Profit/ Loss - Non-operating n.a. n.a. n.a. n.a. 25. Non-recurring Income 144 6 5 39 26. Non-recurring Expense 41 118 69 515 27. Change in Fair Value of Own Debt n.a. n.a. n.a. n.a. 28. Other Non-operating Income and Expenses n.a. n.a. n.a. n.a. 29. Pre-tax Profit 575 1,795 628 238 30. Tax expense 141 618 256 66 31. Profit/Loss from Discontinued Operations n.a. n.a. n.a. n.a. 32. Net Income 434 1,177 372 172 33. Change in Value of AFS Investments -237 433 261 496 34. Revaluation of Fixed Assets n.a. n.a. n.a. n.a. 35. Currency Translation Differences -176 162-26 -165 36. Remaining OCI Gains/(losses) -452 240-451 219 37. Fitch Comprehensive Income -431 2,012 156 722 38. Memo: Profit Allocation to Non-controlling Interests 62 115 106 91 39. Memo: Net Income after Allocation to Non-controlling Interests 372 1,062 266 81 40. Memo: Common Dividends Relating to the Period n.a. 251 n.a. n.a. 41. Memo: Preferred Dividends Related to the Period n.a. n.a. n.a. n.a. Exchange rate USD1 = EUR0.9007USD1 = EUR0.9185 USD1 = EUR0.8237 USD1 = EUR0.7251 11
Balance Sheet 30 Jun 2016 31 Dec 2015 31 Dec 2014 31 Dec 2013 6 Months - Interim As % of Year End As % of Year End As % of Year End As % of EURm Assets EURm Assets EURm Assets EURm Assets Assets A. Loans 1. Residential Mortgage Loans n.a. - n.a. - n.a. - n.a. - 2. Other Mortgage Loans n.a. - n.a. - n.a. - n.a. - 3. Other Consumer/ Retail Loans n.a. - n.a. - n.a. - n.a. - 4. Corporate & Commercial Loans n.a. - 61,369 11.5 67,235 12.0 70,217 12.8 5. Other Loans 211,106 39.6 146,388 27.5 148,809 26.7 153,890 28.0 6. Less: Reserves for Impaired Loans 3,672 0.7 3,862 0.7 5,663 1.0 6,652 1.2 7. Net Loans 207,434 38.9 203,895 38.3 210,381 37.7 217,455 39.6 8. Gross Loans 211,106 39.6 207,757 39.0 216,044 38.7 224,107 40.8 9. Memo: Impaired Loans included above 6,540 1.2 7,124 1.3 11,843 2.1 15,563 2.8 10. Memo: Loans at Fair Value included above n.a. - n.a. - n.a. - n.a. - B. Other Earning Assets 1. Loans and Advances to Banks 30,795 5.8 28,036 5.3 32,145 5.8 31,392 5.7 2. Reverse Repos and Cash Collateral 59,591 11.2 58,754 11.0 71,165 12.7 84,636 15.4 3. Trading Securities and at FV through Income 40,059 7.5 40,400 7.6 43,476 7.8 40,102 7.3 4. Derivatives 87,268 16.4 80,026 15.0 94,186 16.9 69,533 12.7 5. Available for Sale Securities 44,171 8.3 43,026 8.1 42,756 7.7 34,595 6.3 6. Held to Maturity Securities n.a. - n.a. - n.a. - n.a. - 7. Equity Investments in Associates 980 0.2 898 0.2 789 0.1 842 0.2 8. Other Securities 34,362 6.5 36,323 6.8 45,042 8.1 45,029 8.2 9. Total Securities 266,431 50.0 259,427 48.7 297,414 53.3 274,737 50.0 10. Memo: Government Securities included Above n.a. - 47,214 8.9 52,423 9.4 45,399 8.3 11. Memo: Total Securities Pledged 7,511 1.4 3,384 0.6 6,101 1.1 5,551 1.0 12. Investments in Property 109 0.0 106 0.0 620 0.1 638 0.1 13. Insurance Assets n.a. - n.a. - n.a. - n.a. - 14. Other Earning Assets n.a. - n.a. - n.a. - n.a. - 15. Total Earning Assets 504,769 94.8 491,464 92.3 540,560 96.8 524,222 95.4 C. Non-Earning Assets 1. Cash and Due From Banks 13,701 2.6 28,509 5.4 4,897 0.9 12,397 2.3 2. Memo: Mandatory Reserves included above n.a. - n.a. - n.a. - n.a. - 3. Foreclosed Real Estate n.a. - n.a. - n.a. - n.a. - 4. Fixed Assets 2,207 0.4 1,437 0.3 1,916 0.3 1,768 0.3 5. Goodwill 2,076 0.4 2,076 0.4 2,076 0.4 2,080 0.4 6. Other Intangibles 1,477 0.3 1,449 0.3 1,254 0.2 1,127 0.2 7. Current Tax Assets 606 0.1 512 0.1 716 0.1 812 0.1 8. Deferred Tax Assets 2,861 0.5 2,836 0.5 3,426 0.6 3,146 0.6 9. Discontinued Operations 1,006 0.2 846 0.2 421 0.1 1,166 0.2 10. Other Assets 3,899 0.7 3,512 0.7 3,051 0.5 2,936 0.5 11. Total Assets 532,602 100.0 532,641 100.0 558,317 100.0 549,654 100.0 Liabilities and Equity D. Interest-Bearing Liabilities 1. Customer Deposits - Current 159,036 29.9 158,846 29.8 152,030 27.2 157,291 28.6 2. Customer Deposits - Savings 7,039 1.3 6,961 1.3 6,760 1.2 6,281 1.1 3. Customer Deposits - Term 74,283 13.9 83,329 15.6 70,290 12.6 63,061 11.5 4. Total Customer Deposits 240,358 45.1 249,136 46.8 229,080 41.0 226,633 41.2 5. Deposits from Banks 57,600 10.8 65,078 12.2 66,270 11.9 59,406 10.8 6. Repos and Cash Collateral 37,014 6.9 26,555 5.0 53,775 9.6 68,141 12.4 7. Commercial Paper and Short-term Borrowings 11,479 2.2 12,935 2.4 17,425 3.1 20,773 3.8 8. Total Money Market and Short-term Funding 346,451 65.0 353,704 66.4 366,550 65.7 374,953 68.2 9. Senior Unsecured Debt (original maturity > 1 year) 25,754 4.8 27,670 5.2 31,386 5.6 43,897 8.0 10. Subordinated Borrowing 12,368 2.3 11,858 2.2 12,358 2.2 13,714 2.5 11. Covered Bonds n.a. - n.a. - n.a. - n.a. - 12. Other Long-term Funding n.a. - n.a. - n.a. - n.a. - 13. Total LT Funding (original maturity > 1 year) 38,122 7.2 39,528 7.4 43,744 7.8 57,611 10.5 14. Derivatives 91,228 17.1 84,537 15.9 99,534 17.8 71,487 13.0 15. Trading Liabilities 12,359 2.3 10,449 2.0 8,262 1.5 7,892 1.4 16. Total Funding 488,160 91.7 488,218 91.7 518,090 92.8 511,943 93.1 E. Non-Interest Bearing Liabilities 1. Fair Value Portion of Debt n.a. - n.a. - n.a. - n.a. - 2. Credit impairment reserves n.a. - n.a. - n.a. - n.a. - 3. Reserves for Pensions and Other 3,507 0.7 3,326 0.6 5,272 0.9 3,875 0.7 4. Current Tax Liabilities 402 0.1 401 0.1 316 0.1 245 0.0 5. Deferred Tax Liabilities 27 0.0 106 0.0 131 0.0 83 0.0 6. Other Deferred Liabilities 375 0.1 374 0.1 436 0.1 397 0.1 7. Discontinued Operations 1,343 0.3 1,073 0.2 142 0.0 24 0.0 8. Insurance Liabilities n.a. - n.a. - n.a. - n.a. - 9. Other Liabilities 9,106 1.7 8,736 1.6 6,897 1.2 6,154 1.1 10. Total Liabilities 502,920 94.4 502,234 94.3 531,284 95.2 522,721 95.1 F. Hybrid Capital 1. Pref. Shares and Hybrid Capital accounted for as Debt n.a. - n.a. - n.a. - n.a. - 2. Pref. Shares and Hybrid Capital accounted for as Equity n.a. - n.a. - n.a. - n.a. - G. Equity 1. Common Equity 29,885 5.6 30,184 5.7 27,529 4.9 27,727 5.0 2. Non-controlling Interest 999 0.2 1,004 0.2 906 0.2 950 0.2 3. Securities Revaluation Reserves -901-0.2-597 -0.1-963 -0.2-1,195-0.2 4. Foreign Exchange Revaluation Reserves -168 0.0-25 0.0-193 0.0-192 0.0 5. Fixed Asset Revaluations and Other Accumulated OCI -133 0.0-159 0.0-246 0.0-357 -0.1 6. Total Equity 29,682 5.6 30,407 5.7 27,033 4.8 26,933 4.9 7. Total Liabilities and Equity 532,602 100.0 532,641 100.0 558,317 100.0 549,654 100.0 8. Memo: Fitch Core Capital 24,869 4.7 25,622 4.8 22,202 4.0 22,184 4.0 Exchange rate USD1 = EUR0.9007 USD1 = EUR0.9185 USD1 = EUR0.8237 USD1 = EUR0.7251 12
Summary Analytics 30 Jun 2016 31 Dec 2015 31 Dec 2014 31 Dec 2013 6 Months - Interim Year End Year End Year End A. Interest Ratios 1. Interest Income on Loans/ Average Gross Loans 3.6 3.9 4.3 4.4 2. Interest Expense on Customer Deposits/ Average Customer Deposits n.a. n.a. n.a. n.a. 3. Interest Income/ Average Earning Assets 2.1 2.2 2.2 2.4 4. Interest Expense/ Average Interest-bearing Liabilities 1.0 1.1 1.3 1.3 5. Net Interest Income/ Average Earning Assets 1.1 1.1 1.0 1.1 6. Net Int. Inc Less Loan Impairment Charges/ Av. Earning Assets 0.9 1.0 0.8 0.8 7. Net Interest Inc Less Preferred Stock Dividend/ Average Earning Assets 1.1 1.1 1.0 1.1 B. Other Operating Profitability Ratios 1. Non-Interest Income/ Gross Revenues 38.2 40.3 38.6 33.0 2. Non-Interest Expense/ Gross Revenues 82.9 74.0 79.5 73.9 3. Non-Interest Expense/ Average Assets 1.4 1.3 1.2 1.1 4. Pre-impairment Op. Profit/ Average Equity 5.4 9.0 6.8 9.6 5. Pre-impairment Op. Profit/ Average Total Assets 0.3 0.5 0.3 0.4 6. Loans and securities impairment charges/ Pre-impairment Op. Profit 41.5 26.7 62.3 71.0 7. Operating Profit/ Average Equity 3.2 6.6 2.6 2.8 8. Operating Profit/ Average Total Assets 0.2 0.3 0.1 0.1 9. Operating Profit / Risk Weighted Assets 0.5 1.0 0.3 0.4 C. Other Profitability Ratios 1. Net Income/ Average Total Equity 2.9 4.1 1.4 0.7 2. Net Income/ Average Total Assets 0.2 0.2 0.1 0.0 3. Fitch Comprehensive Income/ Average Total Equity -2.9 6.9 0.6 2.8 4. Fitch Comprehensive Income/ Average Total Assets -0.2 0.4 0.0 0.1 5. Taxes/ Pre-tax Profit 24.5 34.4 40.8 27.7 6. Net Income/ Risk Weighted Assets 0.4 0.6 0.2 0.1 D. Capitalization 1. FCC/FCC-Adjusted Risk Weighted Assets 12.5 12.9 10.3 11.6 2. Tangible Common Equity/ Tangible Assets 4.7 4.9 4.0 4.1 3. Tier 1 Regulatory Capital Ratio 13.2 13.8 11.7 13.5 4. Total Regulatory Capital Ratio 16.4 16.5 14.6 19.2 5. Common Equity Tier 1 Capital Ratio 13.2 13.8 11.7 13.1 6. Equity/ Total Assets 5.6 5.7 4.8 4.9 7. Cash Dividends Paid & Declared/ Net Income n.a. 21.3 n.a. n.a. 8. Internal Capital Generation 2.9 3.1 1.4 0.6 E. Loan Quality 1. Growth of Total Assets 0.0-4.6 1.6-13.6 2. Growth of Gross Loans 1.6-3.8-3.6-11.2 3. Impaired Loans/ Gross Loans 3.1 3.4 5.5 6.9 4. Reserves for Impaired Loans/ Gross Loans 1.7 1.9 2.6 3.0 5. Reserves for Impaired Loans/ Impaired Loans 56.2 54.2 47.8 42.7 6. Impaired loans less Reserves for Impaired Loans/ Fitch Core Capital 11.5 12.7 27.8 40.2 7. Impaired Loans less Reserves for Impaired Loans/ Equity 9.7 10.7 22.9 33.1 8. Loan Impairment Charges/ Average Gross Loans 0.3 0.3 0.5 0.7 9. Net Charge-offs/ Average Gross Loans 0.5 1.1 1.0 0.8 10. Impaired Loans + Foreclosed Assets/ Gross Loans + Foreclosed Ass 3.1 3.4 5.5 6.9 F. Funding and Liquidity 1. Loans/ Customer Deposits 87.8 83.4 94.3 98.9 2. Interbank Assets/ Interbank Liabilities 53.5 43.1 48.5 52.8 3. Customer Deposits/ Total Funding (excluding derivatives) 60.6 61.7 54.7 51.5 4. Liquidity Coverage Ratio n.a. n.a. n.a. n.a. 5. Net Stable Funding Ratio n.a. n.a. n.a. n.a. 13
Reference Data 30 Jun 2016 31 Dec 2015 31 Dec 2014 31 Dec 2013 6 Months - Interim As % of Year End As % of Year End As % of Year End As % of EURm Assets EURm Assets EURm Assets EURm Assets A. Off-Balance Sheet Items 1. Managed Securitized Assets Reported Off-Balance Sheet n.a. - n.a. - n.a. - n.a. - 2. Other off-balance sheet exposure to securitizations n.a. - n.a. - n.a. - n.a. - 3. Guarantees 33,850 6.4 37,108 7.0 37,069 6.6 35,220 6.4 4. Acceptances and documentary credits reported off-balance sheet n.a. - n.a. - n.a. - n.a. - 5. Committed Credit Lines 71,396 13.4 72,213 13.6 59,993 10.7 52,326 9.5 6. Other Contingent Liabilities 67 0.0 51 0.0 78 0.0 30 0.0 7. Total Assets under Management n.a. - n.a. - n.a. - n.a. - B. Average Balance Sheet Average Loans 209,432 39.3 213,828 40.1 220,439 39.5 237,450 43.2 Average Earning Assets 500,578 94.0 534,654 100.4 551,742 98.8 586,337 106.7 Average Assets 533,689 100.2 564,217 105.9 572,236 102.5 612,634 111.5 Average Managed Securitized Assets (OBS) n.a. - n.a. - n.a. - n.a. - Average Interest-Bearing Liabilities 488,867 91.8 521,777 98.0 533,018 95.5 574,145 104.5 Average Common equity 30,055 5.6 29,041 5.5 27,551 4.9 26,803 4.9 Average Equity 30,110 5.7 29,096 5.5 27,188 4.9 25,621 4.7 Average Customer Deposits 244,159 45.8 239,832 45.0 227,802 40.8 230,807 42.0 C. Maturities Asset Maturities: Loans & Advances < 3 months 55,557 10.4 n.a. - 63,775 11.4 69,467 12.6 Loans & Advances 3-12 Months 24,321 4.6 n.a. - 25,732 4.6 27,836 5.1 Loans and Advances 1-5 Years 63,162 11.9 n.a. - 65,371 11.7 73,651 13.4 Loans & Advances > 5 years 64,394 12.1 n.a. - 55,503 9.9 46,526 8.5 Debt Securities < 3 Months n.a. - n.a. - n.a. - n.a. - Debt Securities 3-12 Months n.a. - n.a. - n.a. - n.a. - Debt Securities 1-5 Years n.a. - n.a. - n.a. - n.a. - Debt Securities > 5 Years n.a. - n.a. - n.a. - n.a. - Loans & Advances to Banks < 3 Months 7,893 1.5 n.a. - 3,845 0.7 11,941 2.2 Loans & Advances to Banks 3-12 Months 15,875 3.0 n.a. - 22,164 4.0 13,172 2.4 Loans & Advances to Banks 1-5 Years 6,611 1.2 n.a. - 5,587 1.0 5,964 1.1 Loans & Advances to Banks > 5 Years 416 0.1 n.a. - 549 0.1 315 0.1 Liability Maturities: Retail Deposits < 3 months 184,317 34.6 189,800 35.6 172,516 30.9 169,741 30.9 Retail Deposits 3-12 Months 24,886 4.7 27,936 5.2 21,061 3.8 17,580 3.2 Retail Deposits 1-5 Years 12,299 2.3 13,969 2.6 14,414 2.6 15,412 2.8 Retail Deposits > 5 Years 18,856 3.5 17,431 3.3 21,089 3.8 23,900 4.3 Other Deposits < 3 Months n.a. - n.a. - n.a. - n.a. - Other Deposits 3-12 Months n.a. - n.a. - n.a. - n.a. - Other Deposits 1-5 Years n.a. - n.a. - n.a. - n.a. - Other Deposits > 5 Years n.a. - n.a. - n.a. - n.a. - Deposits from Banks < 3 Months 28,325 5.3 35,780 6.7 35,404 6.3 29,117 5.3 Deposits from Banks 3-12 Months 6,281 1.2 5,563 1.0 5,984 1.1 5,949 1.1 Deposits from Banks 1-5 Years 11,264 2.1 14,416 2.7 15,151 2.7 13,211 2.4 Deposits from Banks > 5 Years 11,730 2.2 9,319 1.7 9,731 1.7 11,129 2.0 Senior Debt Maturing < 3 months 2,448 0.5 5,561 1.0 5,805 1.0 7,926 1.4 Senior Debt Maturing 3-12 Months 9,031 1.7 8,980 1.7 11,620 2.1 12,847 2.3 Senior Debt Maturing 1-5 Years 18,045 3.4 24,419 4.6 30,787 5.5 32,661 5.9 Senior Debt Maturing > 5 Years 7,709 1.4 1,645 0.3 599 0.1 11,236 2.0 Total Senior Debt on Balance Sheet 37,233 7.0 40,605 7.6 48,811 8.7 64,670 11.8 Fair Value Portion of Senior Debt n.a. - n.a. - n.a. - n.a. - Subordinated Debt Maturing < 3 months n.a. - 141 0.0 110 0.0 13 0.0 Subordinated Debt Maturing 3-12 Months n.a. - 2,296 0.4 1,416 0.3 1,079 0.2 Subordinated Debt Maturing 1-5 Year n.a. - 5,939 1.1 7,678 1.4 5,436 1.0 Subordinated Debt Maturing > 5 Years n.a. - 3,482 0.7 3,154 0.6 7,186 1.3 Total Subordinated Debt on Balance Sheet 12,368 2.3 11,858 2.2 12,358 2.2 13,714 2.5 Fair Value Portion of Subordinated Debt n.a. - n.a. - n.a. - n.a. - D. Risk Weighted Assets 1. Risk Weighted Assets 199,070 37.4 198,232 37.2 215,178 38.5 190,588 34.7 2. Fitch Core Capital Adjustments for Insurance and Securitisation Risk W n.a. - n.a. - n.a. - n.a. - 3. Fitch Core Capital Adjusted Risk Weighted Assets 199,070 37.4 198,232 37.2 215,178 38.5 190,588 34.7 4. Other Fitch Adjustments to Risk Weighted Assets n.a. - n.a. - n.a. - n.a. - 5. Fitch Adjusted Risk Weighted Assets 199,070 37.4 198,232 37.2 215,178 38.5 190,588 34.7 E. Equity Reconciliation 1. Equity 29,682 5.6 30,407 5.7 27,033 4.8 26,933 4.9 2. Add: Pref. Shares and Hybrid Capital accounted for as Equity n.a. - n.a. - n.a. - n.a. - 3. Add: Other Adjustments n.a. - n.a. - n.a. - n.a. - 4. Published Equity 29,682 5.6 30,407 5.7 27,033 4.8 26,933 4.9 F. Fitch Core Capital Reconciliation 1. Total Equity as reported (including non-controlling interests) 29,682 5.6 30,407 5.7 27,033 4.8 26,933 4.9 2. Fair value effect incl in own debt/borrowings at fv on the B/S- CC only n.a. - n.a. - -28 0.0-30 0.0 3. Non-loss-absorbing non-controlling interests n.a. - n.a. - n.a. - n.a. - 4. Goodwill 2,076 0.4 2,076 0.4 2,076 0.4 2,080 0.4 5. Other intangibles 1,477 0.3 1,449 0.3 1,254 0.2 1,127 0.2 6. Deferred tax assets deduction 1,260 0.2 1,260 0.2 1,473 0.3 1,512 0.3 7. Net asset value of insurance subsidiaries n.a. - n.a. - n.a. - n.a. - 8. First loss tranches of off-balance sheet securitizations n.a. - n.a. - n.a. - n.a. - 9. Fitch Core Capital 24,869 4.7 25,622 4.8 22,202 4.0 22,184 4.0 Exchange Rate USD1 = EUR0.9007 USD1 = EUR0.9185 USD1 = EUR0.8237 USD1 = EUR0.7251 14